Centrelink and reverse mortgages

Linda is considering releasing some of the equity in her home but is unsure how this may affect her Age Pension.

YOURLifeChoices member Linda is considering releasing some of the equity in her home but is unsure how this may affect her Age Pension.

Q. Linda
I was wondering if you could help me with a query concerning getting a loan on our home. We own our home plus we have another home that was left to us by our late son. We will eventually be selling the latter. We are on a full Age Pension and also have an annuity account from which we receive regular, quarterly payments. We want to take out a loan on our home, (one that you don't have to pay back until the house is sold), but we would like to pay back the interest as we go so it will not accumulate and leave nothing for the kids.

What kind of interest would we be paying if we borrowed $40,000 to $50,0000 and do you think this would have any bearing on our Age Pension?  Of course we will notify Centrelink if we go through with this.

A. Many Australians consider using the equity in their home to fund their retirement, or special projects they wish to embark on, but you need to be sure this is indeed the right product for you. An independent financial advisor will be able to give you the right information and advice to help you make an informed decision. You may also wish to read the article from National Information Centre for Retirement Investments (NICRI), When a reverse mortgage is the right choice


As with any home loan product, interest rates can vary depending on the package and lender you choose. You can get an idea of what your repayments would be, based on various interest rates by visiting Canstar.com.au.  

You have to consider the impact any lump sum will have on your Age Pension. If the loan was taken as a lump sum and was spent on an assessable asset, the asset would be counted towards the means test. If the loan proceeds remained unspent and for example were deposited in a bank account, the first $40,000 would not be counted for 90 days while the balance is assessed straight away. This is because bank accounts are assessable. If the proceeds were spent on a non-assessable asset such as the family home or travel then it would not be assessed under the income or assets test. If the loan was progressively drawn down and spent on day-to-day expenses or non-assessable assets then it would also not be counted.





    COMMENTS

    To make a comment, please register or login
    Sceptic
    4th Sep 2012
    5:46pm
    I feel that Life Choices is being more than somewhat naive in recommending an 'Independent Financial Advisor'. Definitionally, there is no such creature, and most if not all would additionally be biased.
    Can Life Choices please re-enter the real world?
    Jill
    4th Sep 2012
    6:11pm
    what IS and independent financial adviser? My super fund told me to speak to theirs and wanted $0000! to do it! I see firms advertising that they have such staff but I remember the losses - some by my dear friends - who had been financially advised by such people. I would rather talk to my Bank or Building society I think - unless there is someone who will talk to you for an hour for under $300!
    Pass the Ductape
    5th Sep 2012
    8:11am
    I tend to agree with the first two posters. The finacial advice I received was little better than plain common sense advice and was easily what I could have worked out for myself - given hindsight. The $500 I paid to the advisor was never recuped by the advice proffered.
    Pammie
    5th Sep 2012
    10:29am
    In response to Linda's question, it is important to ask some other questions.
    1) Is the house given to Linda and her husband valued at less than $273,000, otherwise the Aged Pension will be affected under the assets test.
    2) Would Linda consider borrowing against her late son's house, as it would reduce her assets if equity release is accessed periodically, particularly as she intends to sell it later.
    3) Yes, it is possible to make repayments, but unless you have a specific need for a lump sum, regular drawdowns will meet increased cost of living requirements.
    4) Linda doesn't indicate if she is receiving a rental income from her late son's house - something she might also consider.

    In regard to the comments about "independent financial plamners/advisers", it is important to note a Revserse Mortgage is a Credit product and not a financial investment product, and she should talk to an Equity Release Credit Adviser. Additionally ASIC does not allow Credit Advisers to call themselves "independent.